Looming 'fiscal cliff' could cost California $4.5 billion dollars, more than 200,000 jobs next year

WASHINGTON, D.C. - California stands to lose up to $4.5 billon federal dollars and more than 200,000 jobs next year if Congress fails to reach a deficit-reduction agreement by Dec. 31.

The cuts, originally intended as a threat to get Congress to address the national debt, are now coming into sharper focus as the deadline approaches, and some fear it could damage the state's fragile economy. Numerous studies have tried to quantify the impact on California.

Low-income Californians are especially vulnerable because they rely on federal programs for services ranging from child care and health screenings to education and family violence prevention.

Southern California would be hit particularly hard by cuts in military spending. The Defense Department would lose $57 billion, costing California 135,000 jobs in 2013, according to a report by Stephen Fuller at George Mason University.

"The cuts are going to be hitting just about every aspect of federal spending that might show up here in the state of California," said Robert A. Kleinhenz, chief economist at the Los Angeles County Economic Development Corp.

The looming cuts are a result of a compromise reached in the summer of 2011, which raised the U.S. debt limit but forced Congress to identify $1.5 trillion in spending reductions. If leaders failed to reach a deficit-reduction deal, an automatic $1.2 trillion in cuts equally divided between domestic programs and defense - known as sequestration - would take place.

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Though the deadline was missed, Congress can still avoid the cuts if it reaches a deficit deal by the end of the month. President Barack Obama met with top members of Congress 10 days after his re-election in hopes of striking a deal, but a compromise has not been reached.

Many economists fear the cuts will propel the United States back into a recession. The George Mason University study projected a loss of more than 2 million jobs and a $215 billion drop in the nation's gross domestic product.

Without department by department budgets, it is impossible to know exactly which programs will be cut and which will be spared. However, recent state-by-state analyses provide a glimpse into the potential consequences of the cuts.

Sen. Tom Harkin, D-Iowa, who serves on the Senate Appropriations Committee, which distributes federal money, projected that cuts in health, education and labor will total more than $546 million in California alone.

Among the consequences for California:

12,000 children from low-income families would lose access to Head Start programs.

2,000 fewer women would be screened for breast and cervical cancer.

7,000 victims of domestic violence would not have services.

8,000 fewer people would be tested for HIV.

296,000 students would lose the benefits of Title I grants.

143,000 fewer job seekers would be given assistance to find employment.

The University of California warns it could lose $335 million in research funds and $21.5 million in Medicare revenue for its health system.

"It would have a devastating impact on the nation, including California, and including the University of California," said Gary Falle, the university's associate vice president for federal governmental relations.

California's economy is currently on the rebound. The Legislative Analyst's Office projects a 1.8 percent increase in California's gross state product in 2013. However, it projects the ripple effects of sequestration would result in a 0.6 percent contraction.

Studies point to California's vulnerability to defense cuts. The Pew Research Center estimates that $8 billion in California defense contracts would be lost over the next 10 years. An analysis by the Center for Security Policy projects nearly one in five California defense contracts would be lost next year alone.

All 58 California counties are at risk.

San Diego and Los Angeles, the counties with the most valued contracts, have the potential to lose more than $2 billion next year, according to the center's analysis.

Not everyone in Washington is overly concerned about $109 billion in cuts in light of the government's $3.6 trillion budget. California Rep. Tom McClintock, R-Granite Bay, said it pales in comparison to the huge increases in federal spending over the past decade.

In an interview, he noted that the cuts would amount to barely one-quarter of 1 percent of total federal spending, "which frankly underwhelms me."

"The sequestration is negligible," McClintock said.

Economists warn the failure to reach a compromise could send the U.S. back into a recession with grave implications for California.

The California News Service is a journalism project of the University of California's Washington Center and the UC Berkeley Graduate School of Journalism. Email: cns@ucdc.edu